Month: July 2016

The 2009 amendment to the Fair Foreclosure Act sought, in part, to codify an earlier New Jersey Appellate Division holding in Security National Partners v. Mahler, 336 N.J. Super. 101, 104(App. Div. 2000), that a 20 year limitations period limits a mortgagee’s (i.e., mortgage lender) right to commence a foreclosure action, running from the date of the debtor’s default.  Prior to the enactment of this amendment, New Jersey did not have a statute of limitations addressing mortgage foreclosure actions, and courts applied a 20 year limitations period based on the common law adverse possession period.  Anim Investment v. Shaloub, F-30508-15, (N.J. Super. Ch. Div. June 30, 2016) (Slip Op. at *4).  However the 2009 amendment only addressed residential mortgages.
The statute provides:  
“An action to foreclose a residential mortgage shall not be commenced following the earliest of:

a. Six years from the date fixed for the making of the last payment or the maturity date set forth in the mortgage or the note, bond, or other obligation secured by the mortgage;
b. Thirty-six years from the date of recording of the mortgage, or, if the mortgage is not recorded, 36 years from the date of execution, so long as the mortgage itself does not provide for a period of repayment in excess of 30 years; or
c. Twenty years from the date on which the debtor defaulted, which default has not been cured, as to any of the obligations or covenants contained in the mortgage or in the note, bond, or other obligation secured by the mortgage.”
N.J.S.A. 2A:50-56.1 (Emphasis added).

Therefore under this statute, for residential mortgages “there are three triggering events which commence the running of the statute of limitations period, after which a mortgage foreclosure action cannot be brought.” First is the maturity date for the mortgage.  Second is the date of recording of the mortgage. And third is the date that the debtor defaulted.  Each of those triggering events has a different applicable term for its statute of limitations to run.  The statute commands that the “earliest” date for expiration of a statute of limitations be applied.  

In a recent unpublished Chancery Division case, Judge Edward A. Jerejian (Bergen County) found that a residential mortgage with a maturity date of October 1, 1995 became unenforceable six years later on October 1, 2001. Anim, supra, slip op.  at *9.​​  1   The court found that the statute required the use of the earliest applicable statute of limitations date under N.J.S.A. 2A:50-56.1.  In addition, a 2011 unpublished Appellate Division case found that the statute of limitations elapsed in 2000 on a mortgage with a maturity date in 1994 because the six year statute of limitation under N.J.S.A. 2A:50-56.1(a) was applicable.  Garruto v. Cannici, 2011 N.J. Super. Unpub. LEXIS 1436, 2011 WL 2409912 at *1 (App. Div. June 6, 2011).

​The first question to ask when determining if a long unenforced mortgage is enforceable is whether at issue is a residential mortgage.  If yes, the mortgage is subject to the Fair Foreclosure Act.  The Fair Foreclosure Act (as well as its 2009 statute of limitations amendment) only applies to “residential mortgages”.  See  N.J.S.A. 2A:50-62.  “Residential mortgage” is defined as:

“mortgage, security interest or the like, in which the security is a residential property such as a house, real property or condominium, which is occupied, or is to be occupied, by the debtor, who is a natural person, or a member of the debtor’s immediate family, as that person’s residence. This act shall apply to all residential mortgages wherever made, which have as their security such a residence in the State of New Jersey, provided that the real property which is the subject of the mortgage shall not have more than four dwelling units, one of which shall be, or is planned to be, occupied by the debtor or a member of the debtor’s immediate family as the debtor’s or member’s residence at the time the loan is originated.”  ​N.J.S.A. 2A:5-55 (emphasis added).  

If a mortgage does not qualify as “residential,” there are still judicially created limitations on foreclosing.  New Jersey courts have enforced a “twenty year limitation period to foreclose a mortgage” by “borrowing and applying the twenty year limitation period in certain adverse possession statutes.”  Security National Partners, 336 N.J.Super. at 106.   The Appellate Division in Security National clarified this issue by stating “a twenty year period of non-payment on a mortgage constitutes a running of the statute of limitations” Ibid.  In Security National, there is no distinction between residential mortgages and non-residential mortgages and thus the holding is applicable to all mortgages.  A later statute modified this judicially created limitation on foreclosing residential mortgages, but the twenty year limitation period adopted in Security National has not been modified and appears to still be applicable to non-residential mortgages.
​
Key Takeaways:

• The statutes of limitations for enforcing residential and non-residential mortgages are different.
• Residential mortgages may become unenforceable six years after their final maturity date.
• Both residential and non-residential mortgages become unenforceable after 20 years of consistent non-payment, when the lender does not attempt to foreclose within that 20 years.

 1 Unpublished court opinions, such as this one, are not precedent and not binding on any court.  R. 1:36-3. However, an unpublished opinion may be persuasive secondary authority.  Ibid. In other words, unpublished opinions are instructive but not mandatory. 

Congressional Change
In 2012 Congress passed the most significant change to patent law in more than half a century, the America Invents Act (“AIA”).  The headline change in the AIA brought America in line with the rest of the world by awarding patents to the “first inventor to file” instead of the “first to invent”.  More important for patent litigators, AIA revised and expanded post patent grant challenge procedures.

For patent litigators, the AIA strengthened and streamlined the post patent grant challenge procedure known as the Inter Partes Review (“IPR”). The IPR allows any party to challenge an issued patent alleging that the Patent Office should not have allowed the patent because it is not novel (i.e. invalid).  A typical IPR is filed when someone is accused of infringing a patent.  The accused infringer defensively files an IPR to challenge the validity of the patent it is accused of infringing.  After the accused infringer files its IPR allegation, it is common for the district court patent infringement action to be stayed pending the outcome of the IPR.  If the IPR finds that the patent is not novel (i.e. the patent is invalid), the law suit becomes moot and is dismissed because one cannot infringe an invalid patent.  If the patent is not invalidated at the IPR, the patent proceeds through traditional patent litigation.  In that action, the patent owner receives the benefit of the IPR determination that forbids the accused infringer from raising any invalidity defense that was raised or reasonably could have been raised at the IPR.

Used effectively, the IPR can prevent years of costly patent litigation by cutting straight to one of the three most important issues in a patent litigation; that is, whether the patent is valid.2  The AIA limits the length of an IPR to no more than eighteen months, which is a comparatively short amount of time in the often years long slog of patent litigation.  Furthermore, as long as the underlying infringement trial is stayed, no time or money is expended in discovery and motion practice.

Finally assuming a patent is upheld in the IPR, having a decision in hand on the validity of the patent removes uncertainty as to one of the three central fights in typical patent litigation. (1)Validity, 2)infringement, 3)damages).  Each side can better assess and value settlement when a third of the variability/uncertainty surrounding the litigation has already been decided.

Supreme Court Opinions
Recent U.S. Supreme Court rulings increase the likelihood of extraordinary damages being assessed for patent infringement.  In Octane Fitness v. ICON Health & Fitness, 572 US _ (2014), the Supreme Court broadened the circumstances in which attorney fees could be assessed against a losing party in a patent infringement suit.  Because patent litigation can be quite expensive, any easing of proof needed to shift attorney fees to the loser can have a huge effect. Similarly, the Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. ___ (2016) lessened the patent owner’s burdens to receive “enhanced damages” such as treble damages (actual damages multiplied by 3).  These two decisions increase the chances of a patent infringement litigation resulting in significantly large damage awards.

The Supreme Court has also severely narrowed the possible inventions that can be patented.  In 2010, the Court narrowed the subject that could be patented in Bilski v. Kappos, 561 U.S. 593 (2010).  The Court later reinforced this patentable subject matter narrowing in Alice Corp. v. CLS Bank International, 573 U.S. __ (2014), finding abstract ideas are still unpatentable even if implemented using computers. In effect, Alice severely limited the patentability of so-called “software patents”.

Conclusion  
Taken in isolation, the changes implemented by Congress and the Supreme Court seem contradictory and at cross-purposes:  increasing the power of a patent owner by augmenting damages while enhancing power of accused infringer through expanding patent validity defenses.

However, the overall goal of the U.S. patent system is to encourage innovation.  Congress  simplified the process and shortened the time to determine whether a patent is valid through the IPR.  A patent that survives such an IPR challenge will be regarded as stronger and more valuable to the patent owner.  Patents that do not survive IPR challenge are worthless.  Similarly, by narrowing the subject matter that can be patented the Supreme Court has provided greater clarity and eliminated some uncertainty regarding the viability of patentable inventions.  Removing uncertainty as to the validity of a patent can only enhance its worth.  Finally, facilitating the award of attorney fees and other enhanced damages for patent infringement increases the value of the patent at verdict and in negotiating a settlement.  While not every patent will survive the gauntlet of obstacles put forward by Congress and the Supreme Court, the patents that do survive will be much more valuable to their owner.  By rewarding the inventor in this fashion, the U.S. strives towards its goal of encouraging innovation.